Drug prices in America are among the highest in the world. Who is pulling the levers on drug pricing?

Indiscriminate drug price hikes saddle patients with higher medical costs, cause them to skip doses of their medications, split their pills, or force them to abandon treatment altogether. The distorted marketplace for prescription drugs allows for drug prices to increase without warning or justification.

The Generic Drug Story

Hiking up generic prices

Many patients rely on generic drugs as an affordable option for their medication needs. They expect when a generic version becomes available for a brand name drug, its price will be lower and continue to offer them cost savings over time. In reality, generic drug prices can shoot back up, sometimes surpassing the cost of the brand name medication.

The expectation of generic drugs being inexpensive relies on reasonable competition in the marketplace. When one-third of generic drugs are produced by three or fewer manufacturers, there is nothing stopping pharmaceutical companies from indiscriminately raising the price, even for generic drugs that have been available for decades.

The Competition Myth

Gaming the System

Consumers expect pharmaceutical companies to compete with each other to offer the best price. Yet, patients face the harsh truth that prices for some of their prescription drugs are at record highs, even when there are multiple brands available on the market.

Take insulin for example. Insulin products from various drug makers have undergone frequent and nearly simultaneous price increases in recent years. Patients are left without alternative, affordable treatment options, and their health can suffer. As a result, physicians and patients are left wondering if this is how the market is supposed to work.

The Acquisition Strategy

The unwelcome trend in drug pricing

Developing new drugs is a time-consuming, expensive process filled with years of clinical trials and monetary risks for pharmaceutical companies. The alternative: Acquire existing drugs and reap the profits without the risk. This easy, low-investment strategy threatens to divert attention from discovering new, innovative treatments that could save thousands of lives. The focus now is on cost savings for the company and profits for shareholders, but what about patients?

Some companies have significantly increased drug prices following an acquisition. Patients are disproportionately harmed by unexpected and excessive costs while investors only see the upside – profits. As this business strategy becomes more common and more lucrative, patients have access to fewer treatment alternatives and are stuck footing the bill.

The Price of Middlemen

Supply-chain profits

Pharmacy benefit managers (PBMs) insist that the deals they strike behind closed doors between pharmaceutical companies and health insurers save patients thousands of dollars. They call it their “secret sauce.” But, their recipe for cost savings leaves out the fact that PBMs are private businesses seeking to turn a profit on every deal they close.

PBMs negotiate discounts on the prices of prescription drugs and rebates based on volume of sales with pharmaceutical companies. In turn, health insurers determine which drugs to cover and how much patients pay. PBMs charge fees and make profits all the way down the pharmaceutical supply chain, while insisting that they pass on savings to patients from the deals they strike. But, how do we know if that’s true? Since PBMs refuse to act transparently, there is no way to know if these deals lower prices or require patients to pay more.